5 markets with the best (and worst) potential for landlords

Plenty of Americans dream of buying a rental property and watching the returns pour in every month. But that’s a far more viable dream in some areas than others.

And the top place to be a landlord might surprise some people. A report released Wednesday by RealtyTrac evaluated gross annual yields on rental properties in counties with 100,000 or more people, calculated the average rent for a three-bedroom (as measured by HUD data) annualized and divided by the median home price for the area in April. “It can be very lucrative to buy a rental property in many parts of the country, but with rising home prices, it’s getting less lucrative,” says RealtyTrac vice president Daren Blomquist.

Here are the five best — and worst — markets for landlords in terms of possible returns on their investment.

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Best: Detroit area

While the Detroit-area real estate market isn’t known for its vibrancy these days, there is one silver lining: The area could be a pretty great place to be a landlord if you’re looking for monetary returns. Indeed, Wayne County — which includes parts of Detroit, Warren and Livonia, Mich. — may be the best spot to be a landlord in the country, with average landlords able to reap an annual gross rental yield of more than 28% (compared with nearly 10% for the 370 counties RealtyTrac examined), according to RealtyTrac data. That’s thanks, in part, to low home prices (the April median home price was just over $47,500, compared with $172,000 for the nation as a whole) and, in relation, decent monthly rents (a median of $1,124 for a three-bedroom; HUD does not publish nationwide data). The issue here, of course, is finding a gainfully employed renter (Detroit’s unemployment is around 8%, while overall U.S. unemployment is around 6%). Read: Should you move to Detroit?

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Best: Atlanta area

The Atlanta area’s got plenty of appeal — warm weather, affordable housing and cultural opportunities like theater and live music — but for landlords it’s got a particular charm: the ability to rake in big gains. In Clayton County (a suburb of Atlanta best known as the home to Hartsfield-Jackson International Airport), the median home costs just $52,000 and landlords can charge a median $1,187 for a three-bedroom property — which means they may realize annual gross rental yields of more than 27%.

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Best: Saginaw, Mich.

This former manufacturing and timber town, which is only about a half hour drive from Lake Huron, may be a relatively unknown hidden gem for landlords. Indeed, real estate in Saginaw tends to be cheaper than even Wayne County (near Detroit), though admittedly landlords can’t ask as much for rents here (the median rent is just $944 for a three-bedroom). Still, the gross rental yield is more than 26% each year. But like Detroit, this area faces high unemployment, so finding a suitable tenant may prove difficult.

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Best: Flint, Mich. area

In Genesee County — that’s where Flint is — landlords can rake in more than 21% gross yields on rentals, according to RealtyTrac. Median home prices here are the same as those in Clayton County (at $52,000), and landlords can rent a three-bedroom place for a median of $927 a month. Like in Detroit, unemployment in the area is around 8%.

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Best: Near Baltimore

Not only does Baltimore itself offer plenty to see and do, its proximity to Washington, D.C bolsters that exponentially. And should you become a landlord here, you might actually be able to afford all those restaurants, bars and cultural goings-on that the area has to offer. RealtyTrac data reveals that Baltimore landlords could get annual gross rental yields of 21.32% — thanks to median rents of $1,599 for a three-bedroom and median home prices that are just $90,000.

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Worst: Manhattan, NYC area

There’s little doubt that New York County (that’s basically the area in and near Manhattan) is pricey — the median home costs $850,000 — and that rents are high (the median rental amount for a three bedroom is $1,852). But those high rents don’t mean landlords are raking it in. Indeed, the annual gross rental yield is only 2.6%, according to RealtyTrac data — making it the lowest area on the list.

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Worst: San Francisco area

Like New York County, San Francisco County boasts high home prices (the median is $950,000) and high rents (a three-bedroom fetches a median of $2,657). And landlords here don’t fare much better than they do in the Big Apple. In San Francisco County, their annual gross rental yield is just 3.36%.

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Worst: Marin County, Calif.

Known for its natural beauty and affluence, this area suffers the same problems as its neighbor, San Francisco County: low returns on investments for many landlords. The median home price in Marin is $838,000 and landlords fetch a median of more than $2,600 in rent for a three bedroom. And while those numbers are high, annual gross rental yields are just 3.8%.

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Worst: Brooklyn area

While landlords in Kings County (that’s where Brooklyn is) don’t suffer quite as harsh a fate as those in Manhattan, the gross annual rental yields in the area are still pretty abysmal at just 3.91%. That’s thanks, in part, to median homes that cost well over $500,000.

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Worst: Santa Clara County, Calif.

Like Marin County, Santa Clara — which includes parts of San Jose, Sunnyvale and Santa Clara — is one of the most affluent counties in America (median home prices are $680,000). But that doesn’t mean landlords here are raking it in, as the average one may only get returns of about 4.1%.

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